Quantative Easing to Cease.

The Bank of England has announced it is to stop Quantitative easing (Q.E.) for the time being at least.

What is Q.E.?

In principle this is where the Bank of England gets permission from the Treasury to create money. The Bank, in simple form, adjusts its banks account balance by whatever amount it wants to pump into the financial system. To date this has been £200 billion.

It then uses this money to buy Government bonds off the other banks.

The banks are then supposed to lend the cash they receive, following the sale of the bonds, out to you and I and businesses to pump back into the economy buy expanding business and spending.

Why has B.O.E. stopped Quantitative Easing?

Inflation is increasing at levels above what the Bank expected. As a result, if they pump more money into the financial system inflation could rise further meaning the B.O.E. must raise interest rates and increase the cost of borrowing accordingly.This could hurt businesses and borrowers, meaning they spend less and the economy suffers once again.

Another reason why the Bank has stopped is the economic environment has also improved somewhat. Officially we are now out of recession.

Fingers crossed we are now on the road to recovery although we are all treading a fine line. Moral of the story is keep an eye on your borrowing and watch your spending.